This week, The Simple Dollar takes a look at David Chilton’s The Wealthy Barber, a uniquely-written personal finance guide that has found its way onto people’s shelves for decades. Should it find its way onto your bookshelf? Let’s find out.
Once the “ten percent solution” was covered, Roy (the titular wealthy barber) moves onto some other aspects of sound financial planning, mostly in terms of planning for disasters and for the golden years. The next two chapters focus on insurance, retirement, wills, and that other dreaded “r” word, responsibility.
First, the wealthy barber pretty much demands that everyone has a will. He recommends having it done professionally, because some situations may also call for a revocable living trust as well, and knowing the situation for each (or both) can be complicated. The barber’s insistence on this is so intense that it actually becomes part of the ongoing plot of the book.
Second, Roy lays out life insurance in a very intelligent way, indicating that you only need life insurance to cover your dependents, and if you don’t have any, there’s no need for insurance (as your estate should be able to pay for your internment). In other words, single people and children have no need for insurance because they have no dependents, but married people and (especially) parents need plenty. The book advises that your life insurance should be enough so that your entire financial commitment to the dependent’s life is replaced until they can become independent and it should be invested conservatively to return this amount (about 8% return). So, if you make $50,000 and you want that much to exist to cover your dependents, you need to have about $625,000 in life insurance.
As for insurance types, the book advocates term life insurance for reasons similar to the ones I discussed a while back on The Simple Dollar: if you’re planning well, you won’t need life insurance in your final years, so why pay for it?
So what does the book say about retirement? Basically, put as much as you can into retirement now. The specific options for investment are a bit outdated, so I won’t mention them now, but you should be dumping everything you can into your employer’s plan if they offer matching and maxing out a Roth IRA (this advice is based on the logic from the book, but Roth IRAs are newer than the book).
Now that the future is taken care of, what about investing for the shorter term? Tomorrow, we’ll see what the wealthy barber has to say about buying a home, large purchases, and additional investing.
The Wealthy Barber is the eleventh of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.